MCP hopefuls honed in on weekly call options

The shares of Molycorp Inc (NYSE:MCP - 11.56) bucked the broad-market trend lower on Monday, sparking a wave of bullish betting in the options pits. Most notably, options traders picked up weekly calls to gamble on more short-term upside for the rare earth concern.

By the time the dust settled, MCP had seen roughly 42,000 calls change hands -- more than twice its average daily volume. For comparison, just around 20,000 MCP puts were exchanged.

Garnering notable attention were the weekly 1/11 11- and 11.50-strike calls, which saw about 6,200 and 4,600 contracts cross the tape, respectively. Most of the calls traded at the ask price, and call open interest spiked at both strikes overnight, pointing to newly bought bullish bets.

Digging deeper, the 11-strike calls crossed at a volume-weighted average price (VWAP) of $0.49, indicating a breakeven level of $11.49 (strike plus VWAP) for the buyers. Meanwhile, the VWAP of the 11.50-strike calls was $0.28, meaning the buyers will reap a reward if MCP topples the $11.78 level by Friday's closing bell. However, even if the stock stages a retreat, the initial premium paid represents the maximum risk on the long calls.

Despite outperforming the broader S&P 500 Index (SPX) by more than 25 percentage points during the past 40 sessions, yesterday's appetite for MCP's near-term calls runs counter to the current norm. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.77 stands higher than 66% of all other readings of the past year, implying that short-term options traders are more put-heavy than usual right now.

Technically speaking, MCP has more than doubled since touching an all-time low of $5.75 in mid-November, and ended last week atop its 10- and 20-week moving averages for the first time since mid-April. Furthermore, the stock notched its best finish since Oct. 18 yesterday, thanks to favorable rare-earth production quotas from China.